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How do Currency Markets Interact? Evidence from the Yen-Dollar Exchange Rates in Tokyo, London, and New York


  • Ingyu Chiou

    (Eastern Illinois University)

  • James Jordan- Wagner

    (Eastern Illinois University)

  • Hai-Chin Yu

    (Chung Yuan University, Taiwan)


This paper studies how one currency market affects another currency market in a different time zone, using various contracts of the opening and closing yen-dollar exchange rates traded in Tokyo, London, and New York. We find strong and consistent evidence that the three major currency markets interact significantly. For each of five contracts we examine, Tokyo leads London and New York, London leads New York and Tokyo, and New York leads Tokyo and London. In particular, the causality relationship is much stronger when one market trades right after another. Although our results show violations of market efficiency, these findings cannot be interpreted as the existence of easy arbitrage opportunities among three markets. Instead, these strong causality relationships may be due to some unique characteristics of each of three currency markets, which cannot be observed directly.

Suggested Citation

  • Ingyu Chiou & James Jordan- Wagner & Hai-Chin Yu, 2005. "How do Currency Markets Interact? Evidence from the Yen-Dollar Exchange Rates in Tokyo, London, and New York," Finance 0512024, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpfi:0512024
    Note: Type of Document - pdf; pages: 18. Journal of the Academy of Finance, Vol. 3, No.2, 2005, 173-187.

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    More about this item


    price transmission; causality; VAR;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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